2016 Investment Outlook (6:50)

Video Transcript

JAN
VAN ECK: 2015 was an awful year for commodities. It was really the culmination
of a decade-long bull market, and this has ended and brought commodity prices
and the prices of commodity equities really to where they were before
2000-2001, before the commodities bull market started. I think the difficulty
for markets -- and this has really affected psychology over the last few
quarters-- is that the supply decreases that are inevitable with the slowdown
have not yet hit where demand is. There will be a period when supply and demand
will meet. Maybe it's in 2016 for some commodities; maybe early 2017 for other
commodities. But investors just hate this current period of uncertainty. There
has also been a big credit crunch that has impacted commodity producers, from
Petrobras to Glencore, to the MLP [master limited partnership] sector.

It is really difficult right now to look at all the fundamentals and
figure out what's going on. We know we're in a bear market, and we know there
will be a turn. The typical commodity cycle does take about 18 months, and that
would mean the current cycle should end in the first quarter of 2016. We
believe that is a good a guide as to when we are likely to see the bottom of
this commodity cycle.

BUTCHER: If there's uncertainty in
commodities, what about the emerging markets?

VAN ECK: Some
countries are affected much more than others by commodities among the emerging
markets. It's really funny because we've read so much this year about China and
the stock market fall, but really, the country that had the most difficulty in
2015 was Brazil. Brazil was impacted by the fall in commodities, the
over-leveraged commodities in its economy, political uncertainty, corruption,
and a whole number of different factors that has led to a fall in not only
Brazil’s financial markets, but also in its currency. We are likely to enter
2016 with a lot of uncertainty around Brazil.

Everyone knows now
that China’s growth is slowing down. 2015 was a hugely pivotal year for China,
in which it really entered the world's capital markets. What I like to say is
that 2001 and 2015 were the most important years for China in the last 30
years. In 2001, China entered the world trading system and trade interaction
with other countries exploded. Last year, 2015, it became clear that there was
enough money moving in and out of China, that China couldn't separate its
interest rate from its exchange rate. Given this, we know that China’s interest
rate cycle is on a downward trajectory. That means China’s currency will
probably weaken in 2016. We just don't think it'll be too chaotic. Perhaps
something on the order of 10% to 15%, and it's already started depreciating
now.

For emerging markets, we like to focus on where there are
growth spots, and there are a number of sectors and countries that are doing
quite well in the emerging markets in this slow-growth world.

BUTCHER: Can you give me two examples of such growth spots?

VAN ECK: I think in 2016 and looking forward, that global growth is not
going to accelerate, as we have said before. Monetary and fiscal policies in
the U.S. are on the margin contractionary and will likely stay generally the
same in 2016, and the same structural issues that the developed world has will
continue to exist. Growth in the emerging markets is not even. But there are
several industries that are growing relatively aggressively. There are growth
spots that we are excited about in 2016. I will identify a couple of examples
that represent trends that are less mainstream. Everyone knows about the more
mainstream trends, like the internet consumption in China through Alibaba and
other internet players. First, Turkey created some tax incentives for savings
plans, like 401(k) savings plan we have a here in the United States. And that
growth has been 20% to 40% a year, because it's just taking off. Mobile
payments in Africa are another trend. With several emerging markets, payment
systems have leap frogged what we've done here in the United States, and people
make most payments and transactions using mobile phones, and cell phone
penetration in Africa is relatively high. A third example would be private
banking in India, which is just another secular trend where the financial
sector is reforming, and private players appear to be benefiting. Again, it has
been a 20% growth industry. These are the types of emerging markets trends and
sectors that investors can take advantage of, but are difficult to access. They
are not always available through a mainstream index, so accessing them
generally favors an active management approach.

BUTCHER: Can you
talk about fixed income investing?

VAN ECK: There are two points
that we would make about fixed income investing. First, spreads have increased
quite a bit over the last year. In fact, interest rate spreads for corporate
debt are as high as they've really been over the last 15 years, putting aside
the credit crunch of 2008-2009. This means you're getting paid a lot to invest
in high-yield debt, in MLPs, and other types of fixed-income closed-end funds.
Is this the time to buy? Over the next 12 months or so, we think it could be
pretty interesting to buy fixed income. That's the first point. People talk
about the rate increases, but really, spreads have been widening over the
course of the year, and so we believe that makes fixed income more
attractive.

Secondly, there is this new asset class that we're
very interested in that accesses loans that are originated from online lending
platforms like Lending Club and Prosper. They're called marketplace loans or
online loans. And what this asset class does is allow investors, for the first
time, to invest in consumer credit. If you think about it, there is bank
lending, company bonds, and the bond market. Individual investors have always
been able to invest in company bonds. But we've never been able to invest
directly in the debt of individuals. It's always been through financial
institutions. But now, consumer debt can be invested in through online
platforms. To me, this represents a new asset class, and it's currently a
trillion-dollar asset class, which is huge. We feel the American consumer is in
pretty good shape, and the asset class is relatively attractive.

BUTCHER: Wonderful, thank you.

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